Ramco-Gershenson Opts To Stand Alone; Continues Push to Deleverage

In the latest development in an eventful year for Farmington Hills, Mich.-based Ramco Gershenson Properties Trust, after completing its review of potential strategic and financial alternatives, the firm is opting to remain a stand-alone entity.

The firm will continue its efforts to deleverage, cut back on development activities and also tweaked its board of trustees and dropped a "poison pill" provision that could ease the way for a potential buyout of the company down the road. Lastly, the firm has opted to continue to pay dividends in cash and will raise equity in an upcoming $84 million issuance.

In addition, Ramco-Gershenson has secured a commitment to amend its secured revolving credit facility for The Town Center at Aquia. The new secured credit facility is anticipated to close in the fourth quarter of 2009 and is anticipated to include a $150 million revolving credit facility expiring December 31, 2012 and a $100 million term loan expiring June 30, 2011.

The company also recently announced that it completed the sale of three triple net lease assets, consisting of two Wal-mart stores and a Home Depot store. All these assets were unencumbered, and the aggregate proceeds from the sales totaled $27.4 million.

Jason Lail, a senior real estate analyst with Charlottesville, Va.-based SNL Financial, lauded Ramco-Gershenson for taking advantage of the current favorable environment for REITs to reduce its leverage. REITs have been on a tear since hitting 52-week lows in March with many posted triple-digit percentage gains since then. For example, as of mid-day on Wednesday, Ramco-Gershenson's stock was at $9.02 per share—up more than 160 percent from its 52-week low struck earlier this year. At the end of the second quarter, Ramco-Gershenson's debt-to-total-market capitalization stood at 75 percent—above the median 56 percent for all North American REITs. The moves it announced will make a significant dent in that figure, according to Lail.

"Certainly delivering is a primary concern," Lail says. "The secured line is good news for its ability to access credit in the short term. The nice thing about this is that we keep waiting for all the troubled assets to be sold off. And this positions the firm to be in the pool when those deals occur."

In a move that could have long-term implications, Ramco-Gershenson's board of trustees has terminated the company's shareholder rights plan—its poison pill--effective immediately. Previously, outstanding common shares carried with them rights that were not separable from the common share until the occurrence of a triggering event. Futhermore, the board committed to propose that the company's trustees will be elected annually for one-year terms.

In addition, the board elected Stephen Blank, a member of the board, the nonexecutive chairman of the board. Dennis Gershenson will continue to serve as the company's CEO and president.

Blank is senior fellow, finance at the Urban Land Institute (ULI), has been a trustee of Ramco-Gershenson since 1988 and has served as the company’s lead trustee since 2006. Blank has been with ULI since December 1998. There, he was primarily responsible for the organization's annual Emerging Trends in Real Estate reports, among other duties. Prior to joining ULI, Blank served for five years as managing director, real estate investment banking of CIBC World Markets. Before that, Blank was managing director of Cushman & Wakefield Inc.'s real estate corporate finance department for more than four years.

The elimination of the poison pill and addition of a new chairman comes at the tail end of a 12-month period during which two other REITs have built up substantial ownership stakes in Ramco-Gershenson.

As of August 31, 2009, Equity still owned its 1,790,000 shares and Inland retained 1,410,074 shares.

Ramco also decided to continue to pay its dividend as cash, giving up the option that other REITs have pursued of paying dividends as stock in 2009. Ramco will pay a quarterly dividend of $0.16325 per common share. This is a reduction from its previous quarter dividend of $0.2313 per common share.

Ramco also lowered its full-year FFO per diluted share guidance to $1.80 to $1.86 down from $2.21 to $2.34. The reductions result from a variety of factors including the cost of its strategic review, increased credit costs and reduced expectations on its same-store NOI.